Sanctions-hit Tehran boosts tax take - now greater than oil revenues

This year Iran’s government has collected more revenue from taxes than from oil revenues, something that hasn’t happened in half a century, a senior official in the National Iranian oil company (NIOC) said.

“For the first time in 50 years, the government’s share of the oil revenue is less than what it is earning from tax, including VAT,” Ali Kardor, NIOC deputy managing director, told British newspaper The Guardian the sidelines of the Europe-Iran forum in Geneva. “Only around 10 percent of Iran’s GDP is currently dependent on oil.”

Iranian oil revenue was hit by a combination of plummeting crude price and years of sanctions imposed on its oil sector by Washington and its foreign allies, primarily the European Union. At the same time taxation has been a week spot in Iranian governance for years, with widespread tax evasion and exempts for certain entities.

Tehran launched taxation reform in the early 1990s, although a genuine effort didn’t come before Mohammad Khatami’s presidency of 1997-2005, Hossein Rasam, director of Rastah Idealogistics, told the newspaper. Under President Mahmoud Ahmadinejad, Iran first introduced VAT.

“Bearing fruit just now, Iran is pursuing tax collection more seriously and putting itself in order to rely more on taxation,” he said, adding that in recent years Tehran had rectified several major tax loopholes.

Rasam said it was not clear whether Tehran would be able to maintain the drive after international sanctions are lifted from the Iranian oil sector and if the oil price rebounds. Iran and six leading world powers brokered a deal in June under which Iran would roll down its controversial nuclear program in exchange for sanctions relief.

Iranian President Hassan Rouhani expects that the UN will verify Tehran’s compliance and open the way for Iran’s return to global oil markets in January. Kardor said that in November NIOC would offer contracts worth more than $100 million for foreign investors interested in exploring 45 potential fields in Iran.

“We currently produce 3 million barrels of oil a day, of which 1.3 million are exported but we expect that to increase to 2.3 million in May or June next year,” he said.

Washington has championed economic sanctions against various countries, seeking their compliance to political demands. Russia, which shares some of Iran’s reliance on sale of energy to fund its budget, is the latest target for such tactics, although the US has failed in its intention to isolate Russia from the international community.

The sanctions did aggravate the economic slowdown Russia experienced, but according to Bank of America, there are signs that the Russian economy had passed the bottom of the deepest point in the crisis and is on the path to recovery.

“Corporate profits in Russia have remained at relatively good level since the start of the year. We see a stable growth of corporate revenues as a major potential factor of stabilization and recovery of the economy in the nearest future,” Vladimir Osakovsky, chief economist at the bank’s Moscow branch told Bloomberg.